Funding Pensions a Top Concern for CFOs

July 25, 2013 ( - The rising price tag of health care and the risks and costs associated with funding pension plans weigh heavily on corporate finances, research shows.

According to “Balancing Costs, Risks, and Rewards: The Retirement and Employee Benefits Landscape in 2013,” new research released by Prudential Financial in collaboration with CFO Research Services, health care is the top concern for employers, but funding pensions is not far behind. The survey found nearly 60% of the companies have either frozen accruals for all participants or closed their defined benefit plans to new entrants, and many more are likely to do so within two years.

Many are looking at transferring pension risk and enhancing defined contribution plans to improve operating flexibility and help employees better fund their retirements. While only 6% of those surveyed said their companies have already transferred their defined benefit plan risk to a third-party insurer, approximately 40% said they will consider doing so within the next two years.

More than 60% of chief financial officers (CFOs) surveyed believe employees enrolled in defined contribution plans will make better investment decisions if they are invested in an option that includes a guaranteed income feature. Many of the executives said their companies are at least somewhat likely to offer guaranteed lifetime income products over the next two years.

The survey targeted senior financial executives at companies with defined benefit retirement plans holding $250 million or more in assets. It found, “Most executives think a significant portion of their employees will have to work longer because they don’t have enough money to retire,” according to Margaret McDonald, senior vice president and actuary for pension risk transfer, Prudential Retirement.

More than one-quarter of respondents say their companies have already shifted a large portion of the costs for health care coverage to employees, and another 34% say their companies are very likely to do so within the next two years.